U.S. fashion retailer Modnique banks on Russia to fuel its overseas growth

By Stefany ZarobanAssociate Director of Research

Modnique says the region is ripe for growth, and Top500Guide.com data support this theory.

When web-only fashion retailer Modnique set out last month to launch the first of several, localized versions of its e-commerce site in foreign markets, it didn’t choose China—the second-largest online retail market behind the U.S. It didn’t choose the United Kingdom either, even though that’s one of the most mature e-commerce markets in Europe, with 11.3% of total 2012 retail sales ($52.5 billion of $463.1 billion) stemming from the web. Nor did it choose Canada, a country where customs and shipping regulations tend to be more straightforward than in some other regions.

Instead, Modnique chose Russia. The region represents its fastest-growing customer segment, the retailer says, and sales from Russia and the Ukraine comprise 10% of its total. Moreover, in the third quarter, site visits on Modnique.com from the region increased 128% year over year and sales jumped 145%. Modnique also cites a report by consulting firm McKinsey & Company that predicts online purchasing among Russians will grow 27% annually through 2015 and reach $25 billion by 2014.

“We’ve been successful with our English-speaking customers and now want to extend this shopping experience by providing regionally focused versions of our site,” says CEO Einaras von Gravrock. “After closely monitoring our global consumers’ behaviors and understanding international e-commerce trends, it was clear that our first localized site would launch in Russia.”

Modnique isn’t alone in its experience of strong sales from Russian customers, an analysis of European e-commerce data available on Top500Guide.com shows. In fact, the 28 Russian e-commerce companies ranked in the Internet Retailer Europe 500 grew 2012 online sales to $2.21 billion from $1.60 billion—a 38.1% increase, or the fastest growing country in Europe. (While Russia is technically situated in both Europe and Asia, Internet Retailer considers it a European country for e-commerce measurement purposes.)

There’s also room for growth, as all 2012 e-commerce sales transacted in Russia, estimated at $12.0 billion by the U.K.-based Centre for Retail Research, represents only 3.9% of $305.8 billion in total retail sales in the country. That’s less than half of the percentage of retail sales taking place online as in some other European countries—it’s 10.3% in Ireland, for example, and 6.6% in Germany.

As of mid-November, Modnique.com/ru lists products according to regional style preferences, has full Russian language capabilities and accepts such local payment methods as Qiwi, Webmoney, and Yandex.Money, in addition to bank transfers from local branches, major credit cards and PayPal.

Modnique’s digital marketing team is participating on Russia’s popular social media sites, VK.com and Odnoklassniki, and executing targeted marketing campaigns in Russian, the merchant says. The site provides customer service in Russian in relevant time zones and is offering free shipping on orders over $99 for a limited time.

Modnique may be on the right track, suggests a recent report called “Trends in Russia’s E-Commerce Market” by Forrester Research Inc. analyst Martin Gill. He says in the report that localization is the key to a successful online business in Russia. “In some countries, it is possible to launch an international web shop with a minimum of localization. Russia isn’t one of those countries,” Gill writes. “Beyond the immediately obvious issue of translating content into Russian using Cyrillic text, a successful e-commerce site in Russia requires deep localization—including local search optimization, local social media integration and local payment integration.”

In Russia, Modnique will not only compete with the country’s version of Amazon.com Inc., Ozon.ru, which sells apparel among many things, but also the following merchants, which are the largest online apparel retailers in Russia and sell exclusively on the web, according to Top500Guide.com:

In June, Modnique purchased all assets of the now defunct Totsy.com, a flash sale retailer of mom and baby products. Modnique says it plans to roll out additional localized international sites in the coming months, though it did not elaborate on where.

"Currently we’re actively testing 10 different regions and working hard to identify logistics partners, brand partners and hiring people in Europe, Americas and Asia," von Gravrock says. "We plan to be everywhere in the next three years."